Monday, February 23, 2015

At Calcbench, we are constantly looking for ways to help our clients make greater use of our analytics.  One of the tremendous benefits of using our data is the ability to make systematic adjustments to financials “on the fly.”   For instance, last week, we published a note on how someone might make lease adjustments by using our lease template and seeing how operating leases moving onto the balance sheet would impact shareholders equity.  

This week, we are looking at  pension adjustments.  Please note that pensions are  complex , and that there are some who have deeper knowledge than we do (we aren’t slouches though).  Most importantly, we have  found some interesting things that are material when analyzing firms.

For example, in the defined benefit pension disclosure, firms are required to report an Expected Rate of Return.  This number is exactly what it  sounds like,  an expectation.  This  information,  combined with a few other key items, gives the costs of running the pension plan.  

 In addition to the Expected Rate of Return, there is an Actual Return on Pension plan assets reported.  That number is what the plan actually returned, i.e. the plan’s profit / loss.  The impact, that is the difference between Expected Return on Plan Assets and Actual Return on Plan Assets, goes into Accumulated Other Comprehensive Income (AOCI).  

Here is where it gets interesting - the AOCI, can impact Net Income.  In fact, if the difference between Expected Return on Plan Assets and Actual Return on Plan Assets is significant, you can find material impact to Net Income.  

Drawing conclusions from this type of exercise without context is  always tricky, and we do not recommend it.  But, using this type of  analysis alongside other techniques can  generate insights that  were not previously apparent.   

With that in mind, Calcbench took a look at S&P 600 firms that have reported pension information  through their 10-K’s this year and we found the following firms with the biggest increases / decreases to Net Income because of pension impact (i.e. the difference between expected return and actual return).


As you can see, Gencorp and Kaiser Aluminum actually benefit from the pension adjustment.  Whereas AK Steel and HB Fuller take hits.  This raises a number of interesting questions such as: perhaps Gencorp and Kaiser should change pension managers?  Or, are AK Steel and HB Fuller taking incremental or excessive risk with their plans?     With this information we now have the basis for a number of potential valuation hypotheses and at the very least, we can look at the data in a deeper, more interesting manner.

Want to confirm our work? Just give us a hollar, or better yet, sign up for Calcbench!

Email or go to

FREE Calcbench Premium
Two Week Trial

Research financial & accounting data like never before. Get features designed for better insights. Try our enhanced Excel Add-in. Sign up now to try the Premium Suite.